Framing Platinum Coin Seigniorage: Part Two, Legal Objections

There are three classes of opponents of High Value Platinum Coin Seigniorage (HVPCS, $30 T and above). The first and largest group opposes all PCS of whatever type. The second, opposes HVPCS, but favors using the Trillion Dollar Coin (TDC) for the limited purpose of avoiding the debt ceiling. The third, opposes HVPCS, and doesn’t really favor using the TDC either, except, perhaps, as a last resort.

It favors an incremental approach to PCS beginning perhaps in the millions or billions in face value, and over a long period of time eventually building up to a TDC. The remaining posts in this series consider the many objections brought forward by people in one or more of these categories, and my replies to them. As you will see, the opponents of HVPCS have already thrown everything but the proverbial kitchen sink at it. In this post, I’ll consider some legal objections.

PCS violates the intent of the 1996 legislation, and is an unconstitutional exercise of executive authority, or is an unconstitutional delegation of legislative authority to the executive.

The Courts generally don’t try to interpret laws based on theories about Congressional intent, in the face of the plain language of a law. The language of section (k) of the 1996 legislation is particularly plain in providing for platinum coin seigniorage and leaving face values and other coin attributes up to the Secretary. It is not just that section (k) is plain its meaning; but also that other sections of the law constrain what the secretary can do in various ways. The plain implication of the section (k) textual context is that Congress intended to delegate broad powers of platinum coin seigniorage to the Secretary. There is no contrary evidence to the plain meaning of the text of section (k) in the law.

Some have contended that the purpose of the statute was to legislate about commemorative coins, rather than coins intended as a a source of revenue for the Treasury. Philip Diehl, Director of the US Mint at the time of the legislation drafted the language of the law. He flatly denies that the intent of the law was to authorize more commemorative coins, and says it was to provide new coins that would produce profits for the US Mint. Such coins are unambiguously legal tender. There’s no further evidence that Congress intended anything else in passing the law he drafted.

The Justices aren’t collective psychologists who are expert at divining the intent of the Congress. They are expert, however, at interpreting what the text of a law says, and so that is what they stick to almost all the time. A challenge to PCS based on intent isn’t something any Court is likely to take up, in the face of the language of the 1996 legislation, and Congress’s plain ability to repeal one or more of countless laws that allow unintended consequences.

What if a $60 trillion dollar coin is used to avoid the debt ceiling, and this saves the United States from defaulting on its debts, and the world financial system from collapsing? Is it then likely that the Supreme Court will entertain any challenges to the plain language of the law based on an interpretation of intent, unsupported in the text of the law, which would then place the Treasury in the position of having to return that trillion dollars in Fed credits, and again look default in the face? Can you see John Roberts ever voting for this?

John Carney, a CNBC blogger, has suggested that the 1996 legislation is unconstitutional because it specified an impermissible delegation of the Congressional authority to coin money to the Executive Branch. He argues that there’s no “intelligible principle” behind the language in section (k) limiting the Secretary’s powers.

However, Congress delegated to the Treasury the power to mint platinum bullion and proof coins having a variety of properties to be specified by the Secretary; but it did not delegate to the Secretary that power with respect to coins made out of other materials; or even with respect to platinum coins that are neither bullion or proof coins. So, Congress did limit the authority of the Treasury to mint platinum coins according to intelligible principles. Just not the intelligible principle that the coins involved had to be limited to a specific face value. Or, to put it another way, in the area of platinum coins what Congress has done is to delegate its authority according to “the intelligible principle” that the Secretary is to mint such coins with face values he/she deems necessary and proper.

PCS really doesn’t avoid breaching the debt ceiling

It’s also been suggested that PCS doesn’t solve the debt ceiling problem, because in substance, if not in form, using the platinum coin is just a way of Treasury getting a loan from the Fed until the debt ceiling can be raised and it can go back to issuing debt. This argument assumes, however, that Treasury would have an obligation, at some point, to redeem the coin from the Fed with revenue raised from taxes or debt issuance. However, none of the proponents of using PCS, until very recently, when this idea crept into the writing of Paul Krugman, ever proposed restoring the status quo by buying the coin back from the Fed.

Instead, our main idea has always been that any platinum coins deposited at the Fed would remain in its vault as a Fed asset in perpetuity, and that the Fed would credit the US Mint’s account with the face values of the coins. In our view the Fed would have the legal duty to provide such credits in response to a deposit of a platinum coin or coins because the coins are legal tender, and the NY Fed, as the fiduciary banking agent of the Treasury Department, cannot refuse to accept and credit a legal tender coin. The Treasury would incur no obligation to the Fed in using PCS, any more than any one of us would incur any obligation to our bank in giving them a coin with $100 in total face value, and expecting the bank to credit our account with that $100.

The Fed can’t be forced by Treasury to accept and credit an HVPC it mints

Oh, yes it can. Treasury may choose not to force the Fed to do this, as it just did, but one of the powers vested in the Secretary of the Treasury before creation of the Federal Reserve system was certainly to spend its legal tender into the economy. To do that under an arrangement where the Fed is its fiduciary bank/agent, requires that the Fed deposit and credit its legal tender into its spending account, the TGA. So, I think it follows that under 12 USC 246, the Secretary has the authority to order the Federal Reserve to credit that coin so Federal spending can proceed. If the Fed Chair still refuses, then the President can remove the Fed Chair for cause (12 USC 242). See this more detailed argument for further development. In Part Three, I’ll consider political objections to using HVPCS.

(Author’s Note: h/t to Jack Foster for proposing a framing document for HVPCS. This is it; but divided into 6 parts for blogging convenience. The rest of the series will continue with objections made to HVPCS and my answers to them.)

“The Fed can’t be forced by Treasury to accept and credit an HVPC it mints. Oh, yes it can.”

In the normal course of events, I think when banks run out of rolls of quarters that their customers want, they ask the Fed for some more, and the Fed orders them from the mint. This setup is probably not enshrined in the law, but if the mint were to make more quarters than the Fed wanted, what would happen? I bet the Fed would say “you keep them, we’ll get back to you when we need some more”.

Ultimately, though, the President can say to Ben, “Take this coin, or you’re fired.”

GJ, The Fed has already accepted well over $1 billion in uncirculated state $1 coins that no banks are requesting and credited the TGA with the seigniorage. Probably other unwanted coins too, like Susies. The precedents have been set.

As a lawyer, I am very glad to see this issue being discussed. When I see who the people are who commonly write articles for this website, I see no lawyers other than Bill Black (of course he is a great one) and I wish there were more legal discussion of these issues, not just economic discussion. Whether the government has the right to issue its own fiat money as opposed to private fiat money is interesting legally and historically. I chuckle a bit when I hear the term Modern Money Theory since essentially the same idea was very much a part of the economic thinking of some of our most venerable founding fathers, including such luminaries as Franklin, Madison and Jefferson.

As I commented in Part One (not realizing there was a Part Two) there are several good reasons to think the Supreme Court would go along with the trillion dollar coin, especially if it was successful. (And government issued fiat money has historically been very successful except when counterfeited — a notable case being what happened during the Revolutionary war when England counterfeited huge quantities of the “Continental dollar”).

In the legal tender cases decided after the civil war, the Supreme Court had to decide whether Lincoln’s greenbacks were constitutional, and it ultimately decided under Article I, Section 8, they were constitutional for at least two reasons:

(1) the clause which permits Congress to coin money and declare the value thereof was decided, on historical grounds, to include and to be the equivalent of, printing paper money as well;

(2)it also decided that printing paper money was part of Congress’ war powers under the war powers clause (a country with no money has a hard time paying for the costs of war).

Several other things also helped the Supreme Court decide, in the legal tender cases, that greenbacks were constitutional. First was their immense success in helping Lincoln win the war. Second was the concept of “emiting bills of credit” which states are prohibited from doing under Article I, Section 10. Bills of credit are essentially paper money because they are issued by a government primarily to be used for the payment of taxes. The federal government is not prohibited in the Constitution from issuing or emiting bills of credit, hence the argument that it is entitled to issue them. Finally there was the consideration of what would happen if all of the greenbacks were declared to be of no value. The government would be reneging on a contract. It would also leave all the people who held them in serious financial jeopardy.

So there is much in the legal tender cases that would act as precedent for the executive branch having the right in times of need or national emergency, especially where Congress has expressly given the executive that right, to issue such coinage or paper money.

And I do think you are right that the Fed would have to take such a coin or coins. If it refused to accept valid legal tender from the US Treasury the legal implications could be huge. And I would bet that a court might very well force the Fed to take it, because to do the contrary would be to gut the lawful legal tender of the United States.

You might have heard of Ellen Brown, who wrote a book called Web of Debt and has a website of the same name. She is the lawyer and perhaps the most knowledgeable on this issue and has written many guest posts on places like the Huffington Post. I am sure if asked, she would welcome the opportunity to be a guest writer here from time to time and address the legal and historical implications of government fiat money.